2016 -- S 2196

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LC004211

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS

     Introduced By: Senators Lombardo, Ruggerio, Goodwin, Lombardi, and Ciccone

     Date Introduced: January 27, 2016

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 37 of the General Laws entitled "PUBLIC PROPERTY AND

WORKS" is hereby amended by adding thereto the following chapter:

CHAPTER 25

PAYMENTS TO CONTRACTORS AND SUBCONTRACTORS

     37-25-1. Applications for payment. -- (a) A contractor shall, once in each month on the

day of the month corresponding to the day specified in the contractor agreement, on forms

provided and in the manner prescribed by the awarding authority, submit to the awarding

authority a statement showing the total amount of work done from the time of the estimate and

the value thereof as approved by the resident engineer and the designer. It shall be the

responsibility of the contractor to deliver, or cause to be delivered, to the resident engineer said

periodic estimate in proper form and approved as provided above. All periodic estimates shall

contain such certifications and other evidence supporting the contractor's right to payment as the

awarding authority may require, including without limitation, lien waivers, on forms as the

awarding authority may require. If there is no resident engineer assigned to the contract, the

designer shall act in lieu thereof. If there is neither a resident engineer, nor a designer, the

awarding authority shall designate a person at the office of the awarding authority. The contractor

shall include in the periodic estimate only materials incorporated in the work, except as may

otherwise be provided in herein. The awarding authority shall retain five percent (5%) of such

estimated value as security for the completion of the work and shall pay to the contractor while

carrying on the work the balance not retained, subject to the approval of the awarding authority

and after deducting therefrom all previous payments and all sums to be kept under the provisions

of the contract.

     (b) Each periodic estimate shall constitute the contractor's representation that:

     (1) The payment requested to be disbursed has been incurred by the contractor on account

of the work and is justly due to subcontractors or, to the contractor in the case of other work

performed by the contractor on account thereof;

     (2) The materials, supplies and equipment for which application for payment is being

submitted have been installed or incorporated into the work or have been stored at the site or at

such off-site storage locations as the awarding authority shall have approved;

     (3) The materials, supplies and equipment are insured in accordance with the provisions

of the contract;

     (4) The materials, supplies and equipment are owned by the owner and are not subject to

any liens or encumbrances;

     (5) The work which is the subject of the periodic estimate has been performed in

accordance with the contract; and

     (6) That all due and payable bills with respect to the work have been paid to date or shall

be paid from the proceeds of the periodic estimate.

     (c) The contractor may include in a periodic estimate the value of materials or equipment

delivered at the site (or at some other location agreed to in writing) only upon delivery to the

awarding authority of:

     (1) An acceptable transfer of title on a form provided by the awarding authority;

     (2) Written certification by the contractor (or applicable subcontractor) on a form

provided by the awarding authority that the contractor (or the subcontractor) is the lawful owner

and that the materials or equipment are free from all encumbrances, accompanied by invoices or

other acceptable proof of prior payment for such materials;

     (3) A stored materials insurance binder that covers the materials for which payment is

requested that names the owner as an insured party should the stored materials be subjected to

any casualty, loss or theft prior to their inclusion in the work. The material(s) or equipment must,

in the judgment of the designer:

     (i) Meet the requirements of the contract, including prior shop drawing, product data, and

sample approval;

     (ii) Be ready for use; and

     (iii) Be properly stored by the contractor and be adequately protected until incorporated

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into the work.

     (d) The awarding authority may make changes in any periodic estimate submitted by the

contractor and the payment due shall be computed in accordance with the changes made. The

provisions of the general laws shall govern payments on which the awarding authority has made

changes.

     (e) No certificate for payment and no progress payment shall constitute acceptance of

work that is not in accordance with the contract documents.

     (f) The contractor and all subcontractors furnishing labor on this contract agree to furnish

certified payroll reports if requested to do so, at no additional expense to the awarding authority.

The awarding authority may at all reasonable times audit such reports.

     37-25-2. Periodic payments. – (a) The awarding authority shall make payment to the

contractor in accordance with existing law. Within fifteen (15) days (thirty (30) days in the case

of the state, including local housing authorities) after receipt from the contractor, at the place

designated by the awarding authority if such a place is so designated, of a periodic estimate

requesting payment of the amount due for the preceding month, the awarding authority shall

make a periodic payment to the contractor for the work performed during the preceding month

and for the materials not incorporated in the work but delivered and suitably stored at the site or

at some location agreed upon in writing to which the contractor has title or to which a

subcontractor has title and has authorized the contractor to transfer title to the awarding authority

upon certification by the contractor that they are the lawful owner and that the materials are free

from all encumbrances, but less:

     (1) A retention based on its estimate of the fair value of its claims against the contractor;

less

     (2) A retention for direct payments to subcontractors based on demands for same; and

less

     (3) A retention not exceeding five percent (5%) of the approved amount of the periodic

payment.

     (b) After the receipt of a periodic estimate requesting final payment and within sixty-five

(65) days after:

     (1) The contractor fully completes the work or substantially completes the work so that

the value of the work remaining to be done is, in the estimate of the awarding authority, less than

one percent (1%) of the original contract price; or

     (2) The contractor substantially completes the work and the awarding authority takes

possession for occupancy, whichever occurs first, the awarding authority shall pay the contractor

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the entire balance due on the contract less:

     (i) A retention based on its estimate of the fair value of its claims against the contractor

and of the cost of completing the incomplete and unsatisfactory items of work; and less

     (ii) A retention for direct payments to subcontractors based on demands for same, or

based on the record of payments by the contractor to the subcontractors under this contract if such

record of payment indicates that the contractor has not paid subcontractors. If the awarding

authority fails to make payment as herein provided, there shall be added to each payment daily

interest at the rate of three (3) percentage points above the discount rate then charged by the

Federal Reserve Bank of Boston commencing on the first day after payment is due and

continuing until the payment is delivered or mailed to the contractor; provided, that no interest

shall be due, in any event, on the amount due on a periodic estimate for final payment until fifteen

(15) days (twenty-four (24) days in the case of the state) after receipt of such periodic estimate

from the contractor, at the place designated by the awarding authority if such a place is so

designated. The contractor agrees to pay to each subcontractor a portion of any interest paid in

accordance with the amount due each subcontractor.

     (c) The awarding authority may make changes in any periodic estimate submitted by the

contractor and the payment due on said periodic estimate shall be computed in accordance with

the change so made, but such changes or any requirement for a corrected periodic estimate shall

not affect the due date for the periodic payment or the date for the commencement of interest

charges on the amount of the periodic payment computed in accordance with the changes made,

as provided herein; provided, that the awarding authority may, within seven (7) days after receipt,

return to the contractor for correction, any periodic estimate which is not in the required form or

which contains computations not arithmetically correct and, in that event, the date of receipt of

such periodic estimate shall be the date of receipt of the corrected periodic estimate in proper

form and with arithmetically correct computations. The date of receipt of a periodic estimate

received on a Saturday shall be the first working day thereafter. These provisions shall not apply

to any contract for the construction, reconstruction, alteration, remodeling, repair or demolition of

any public building to which this section applies.

     (d) All periodic estimates shall be submitted to the awarding authority, or to its designee

as set forth in writing to the contractor, and the date of receipt by the awarding authority or its

designee shall be marked on the estimate. All periodic estimates shall contain a separate item for

each filed subtrade and each sub-subtrade listed in sub-bid form as required by specifications and

column listing the amount paid to each filed subcontractor as of the date of the periodic estimate

is filed. The person making payment for the awarding authority shall add the daily interest

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provided for herein to each payment for each day beyond the due date of receipt marked on the

estimate. A certificate of the architect to the effect that the contractor has fully or substantially

completed the work shall be conclusive for the purposes of this section. Notwithstanding the

provisions of this section, at any time after the value of the work remaining to be done is, in the

estimation of the awarding authority, less than one percent (1%) of the adjusted contract price, or

the awarding authority has determined that the contractor has substantially completed the work

and the awarding authority has taken possession for occupancy, the awarding authority may send

to the general contractor by certified mail, return receipt requested, a complete and final list of all

incomplete and unsatisfactory work items, including, for each item on the list, a good faith

estimate of the fair and reasonable cost of completing such item. The general contractor shall then

complete all such work items within thirty (30) days of receipt of the list or before the contract

completion date, whichever is later. If the general contractor fails to complete all incomplete and

unsatisfactory work items within forty-five (45) days after receipt of such items furnished by the

awarding authority or before the contract completion date, whichever is later, subsequent to an

additional fourteen (14) days' written notice to the general contractor by certified mail, return

receipt requested, the awarding authority may terminate the contract and complete the incomplete

and unsatisfactory work items and charge the cost of same to the general contractor and such

termination shall be without prejudice to any other rights or remedies the awarding authority may

have under the contract. The awarding authority shall note any termination in the evaluation form

to be filed by the awarding authority.

     37-25-3. Payment of subcontractors. -- (a) Within five (5) business days after a general

contractor receives payment on account of a periodic estimate, the general contractor shall pay to

each subcontractor the amount paid for the labor performed and the materials furnished by that

subcontractor, less any amount specified in any court proceedings barring such payment and also

less any amount claimed due from the subcontractor by the general contractor.

     (b) Not later than sixty-five (65) days after each subcontractor substantially completes

their work in accordance with the plans and specifications, the entire balance due under the

subcontract less amounts retained by the awarding authority as the estimated cost of completing

the incomplete and unsatisfactory items of work, shall be due the subcontractor; and the awarding

authority shall pay that amount to the general contractor. The general contractor shall, within five

(5) business days, pay to the subcontractor the full amount received from the awarding authority

less any amount as may be specified in any court proceedings barring such payment and also less

any amount claimed due from the subcontractor by the general contractor.

     (c) Each payment made by the awarding authority to the general contractor for the labor

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performed and the materials furnished by a subcontractor shall be made to the general contractor

for the account of that subcontractor, and the awarding authority shall take reasonable steps to

compel the general contractor to make each such payment to each such subcontractor. If the

awarding authority has received a demand for direct payment from a subcontractor for any

amount which has already been included in a payment to the general contractor or which is to be

included in a payment to the general contractor for payment to the subcontractor, the awarding

authority shall act upon the demand as provided in this section.

     (d) If, within seventy (70) days after the subcontractor has substantially completed the

subcontract work, the subcontractor has not received from the general contractor the balance due

under the subcontract including any amount due for extra labor and materials furnished to the

general contractor, less any amount retained by the awarding authority as the estimated cost of

completing the incomplete and unsatisfactory items of work, the subcontractor may demand

direct payment of that balance from the awarding authority. The demand shall be by a sworn

statement delivered to or sent by certified mail to the awarding authority, and a copy shall be

delivered to or sent by certified mail to the general contractor at the same time. The reply shall

contain a detailed breakdown of the balance due under the subcontract and also a statement of the

status of completion of the subcontract work. Any demand made after substantial completion of

the subcontract work shall be valid even if delivered or mailed prior to seventy (70) days after the

subcontractor has substantially completed the subcontract work. Within ten (10) days after the

subcontractor has delivered or so mailed the demand to the awarding authority and delivered or

so mailed a copy to the general contractor, the general contractor shall reply to the demand. The

reply shall be by a sworn statement to or sent by certified mail to the awarding authority and a

copy shall be delivered to or sent by certified mail to the subcontractor at the same time. The

reply shall contain a detailed breakdown of the balance due under the subcontract including any

amount due for extra labor and materials furnished to the general contractor and of the amount

due for each claim made by the general contractor against the subcontractor.

     (e) Within fifteen (15) days after receipt of the demand by the awarding authority, but in

no event prior to seventy (70) days after substantial completion of the subcontract work, the

awarding authority shall make direct payment to the subcontractor of the balance due under the

subcontract including any amount due for extra labor and materials furnished to the general

contractor, less any amount:

     (1) Retained by the awarding authority as the estimated cost of completing the

incomplete or unsatisfactory items of work;

     (2) Specified in any court proceedings barring such payment; or

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     (3) Disputed by the general contractor in the sworn reply; provided that the awarding

authority shall not deduct from a direct payment any amount if the reply is not sworn to, or for

which the sworn reply does not contain the detailed breakdown required. The awarding authority

shall make further direct payments to the subcontractor after the removal of the basis for

deduction from direct payments within five (5) business days.

     (f) The awarding authority shall forthwith deposit the amount deducted from a direct

payment in an interest-bearing joint account in the names of the general contractor and the

subcontractor in a bank in Rhode Island selected by the awarding authority or agreed upon by the

general contractor and the subcontractor, and shall notify the general contractor and the

subcontractor of the date of the deposit and the bank receiving the deposit. The bank shall pay the

amount in the account, including accrued interest, as provided in an agreement between the

general contractor and the subcontractor or as determined by decree of a court of competent

jurisdiction.

     (g) All direct payments and all deductions from demands for direct payments deposited in

an interest-bearing account or accounts in a bank shall be made out of amounts payable to the

general contractor at the time of receipt of a demand for direct payment from a subcontractor and

out of amounts which later become payable to the general contractor and in the order of receipt of

such demands from subcontractors. All direct payments shall discharge the obligation of the

awarding authority to the general contractor to the extent of such payment.

     (h) The awarding authority shall deduct from payments to a general contractor amounts

which, together with the deposits in interest-bearing accounts, are sufficient to satisfy all unpaid

balances of demands for direct payment received from subcontractors. All such amounts shall be

earmarked for direct payments, and the subcontractors shall have a right to such deductions prior

to any claims against such amounts by creditors of the general contractor.

     (i) If the subcontractor does not receive payment or if the general contractor does not

submit a periodic estimate for the value of the labor or materials performed or furnished by the

subcontractor and the subcontractor does not receive payment for same when due less the

deductions, the subcontractor may demand direct payment by following the procedure herein and

the general contractor may file a sworn reply. A demand made after the first day of the month

following that for which the subcontractor performed or furnished the labor and materials for

which the subcontractor seeks payment shall be valid even if delivered or mailed prior to the time

payment was due on a periodic estimate from the general contractor. Thereafter the awarding

authority shall proceed.

     (j) Any assignment by a subcontractor of the rights under this section to a surety

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company furnishing a bond shall be invalid. The assignment and subrogation rights of the surety

to amounts included in a demand for direct payment which are in the possession of the awarding

authority or which are on deposit pursuant to subsection (f) of this section shall be subordinate to

the rights of all subcontractors who are entitled to be paid under this section and who have not

been paid in full.

     (k)(1) "Subcontractor" as used herein means a person who files a sub-bid and received a

subcontract as a result of that filed sub-bid or who is approved by the awarding authority in

writing as a person performing labor or both performing labor and furnishing materials pursuant

to a contract with the general contractor;

     (2) "Contracts awarded" means a person approved by the awarding authority in writing as

a person performing labor or both performing labor and furnishing materials pursuant to a

contract with the general contractor, and

     (3) "Contracts with the state not awarded" means a person contracting with the general

contractor to supply materials used or employed in a public works project for a price in excess of

five thousand dollars ($5,000).

     (l) A general contractor or a subcontractor shall enforce a claim to any portion of the

amount of a demand for direct payment deposit as provided in subsection (f) of this section by a

petition in the superior court against the other and the bank shall not be a necessary party. A

subcontractor shall enforce a claim for direct payment or a right to require a deposit as provided

in subsection (f) of this section by a petition in the superior court against the awarding authority

and the general contractor shall not be a necessary party. Upon motion of any party the court shall

advance for speedy trial any petition filed. The court shall enter an interlocutory decree upon

which execution shall issue for any part of a claim found due, upon motion of any party, and shall

advance for speedy trial the petition to collect the remainder of the claim. Any party aggrieved by

such interlocutory decree shall have the right to appeal therefrom. The court shall not consolidate

for trial the petition of any subcontractor with the petition of one or more subcontractors or the

same general contract unless the court finds that a substantial portion of the evidence is applicable

to the petitions sought to be consolidated and that such consolidation will prevent unnecessary

duplication of evidence. A decree in any such proceeding shall not include interest on the

disputed amount deposited in excess of the interest earned for the period of any such deposit. No

person except a subcontractor filing a demand for direct payment for which no funds due the

general contractor are available for direct payment shall have a right to file a petition against the

awarding authority claiming a demand for direct payment is premature and such subcontractor

must file the petition before the awarding authority has made a direct payment to the

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subcontractor and has made a deposit of the disputed portion. In any petition to collect any claim

for which a subcontractor has filed a demand for direct payment the court shall, upon motion of

the general contractor, reduce by the amount of any deposit of a disputed amount by the awarding

authority any amount held under a writ of attachment or pursuant to a restraining order or

injunction.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS

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     This act would establish a procedure for the timely payment to contractors and

subcontractors in connection with state contracts. The act would provide for an awarding

authority to make a direct deposit into an interest-bearing joint account in the names of both the

general contractor and the subcontractor. The act also would authorize a subcontractor to enforce

a claim for a direct deposit directly against the awarding authority through an action in superior

court.

     This act would take effect upon passage.

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